October 24, 2016

Fitch unit lauds Budget 2017 as ‘balanced’

Putrajaya delivered a federal spending plan that manages to appease its supporters but without hurting development or its need to trim a chronic deficit, said Fitch Group unit BMI Research.

The research firm noted that Budget 2017 featured continued allocations for long-term development plans such as infrastructure spending and human resource improvement despite short-term moves such as aid programmes to bolster public support.

“Overall, we view the government’s announced budget as an effort to strike a balance between maintaining fiscal discipline and addressing its immediate political needs. The targeted nature of its expenditure and efforts to increase revenue suggest that the government remains committed to getting its finances back in order.

“We believe that the government is likely to achieve its goals given the targeted nature of its spending, and we forecast the deficit in 2017 to come in at 3.0 per cent of GDP, from 3.1 per cent of GDP in 2016,” it said in a statement today.

It also said that strict fiscal discipline, such as the government’s commitment to the Goods and Services Tax (GST), will send a positive signal to investors that it has the political will to pursue unpopular policies including more aggressive fiscal reforms in the future.

The research firm also concurred with Putrajaya’s assessment that the GST has been vital in supplementing federal revenue, which has fallen in recent years due to depressed crude oil price.

It said the RM30 billion that the federal government has collected since implementing the GST in April 2015 will help keep the local economy running.

“Given that the government obtains most of its revenue from direct taxes, we believe that it will likely meet its revenue collection targets as we expect economic growth to pick up in 2017,” it said.

BMI Research also forecast that the Malaysian economy will expand by 4.7 per cent in 2017, consistent with the government’s projection of between 4 and 5 per cent.

This will be aided by crude oil price that it projected will improve to US$55 a barrel next year.

It contained both measures to reduce the government’s spending, such as a cut to subsidies, and announcement of increased steps to help Malaysians cope with rising prices including an increase to the 1Malaysia People’s Aid (BR1M) handouts.